A feasibility study assesses the economic viability of a proposed project, considering factors like market demand, capital and operating costs, regulatory requirements, and potential profitability. It helps determine whether to proceed with the project. .
Capital cost refers to the total expenses required to build and start a plant. It includes direct costs (equipment, construction, installation) and indirect costs (engineering, legal fees, contingency, startup costs).
Operating costs are the ongoing expenses for running a plant, including raw materials, utilities, labor, maintenance, and overhead. They are crucial for determining the profitability and cash flow of the plant.
Break-even analysis determines the production level at which total revenue equals total costs. It involves calculating fixed and variable costs and identifying the sales volume needed to cover these costs, indicating the point of no profit or loss.
NPV calculates the present value of future cash flows minus the initial investment. A positive NPV indicates that the project is expected to generate profit and is financially viable, making it a crucial metric for investment decisions.
IRR is the discount rate that makes the NPV of a project zero. It represents the project's expected rate of return. A project is considered desirable if the IRR exceeds the required rate of return or the cost of capital.
Factors include technological advancements, market demand, regulatory changes, maintenance and operating costs, and depreciation. The economic life is the period during which the plant remains profitable and competitive.
Depreciation accounts for the wear and tear of assets over time, reducing taxable income and thereby impacting cash flow. Taxes affect net profits and cash flow, influencing the overall economic evaluation and financial planning of a plant.
Sensitivity analysis assesses how changes in key variables (e.g., raw material costs, product prices, interest rates) affect the project's financial outcomes. It helps identify potential risks and the robustness of the economic evaluation.
Economies of scale refer to the cost advantages gained by increasing production scale, resulting in lower per-unit costs due to factors like more efficient use of resources, bulk purchasing, and optimized operations. This can significantly enhance the plant's profitability.